This faith and finance podcast is underwritten in part by Christian Credit Counselors. If you're struggling with credit card debt but don't know where to start, our trusted partner Christian Credit Counselors offers a debt management program that can get you out of credit card debt 80% faster while honoring your debt in full.
Contact them to get out of debt today at ChristianCreditCounselors.org. Americans have an average of four credit cards. Do you really need that many?
And how many is enough? I am Rob West. Too often we hang on to credit cards we no longer use, providing an unnecessary invitation to identity thieves to run up charges in your name. Canceling them is a good idea if done properly. I'll talk about that today and then it's on to your calls at 800-525-7000.
That number is 800-525-7000. This is faith and finance biblical wisdom for your financial decisions. Well, Christians should always take Proverbs 10-4 seriously.
It reads, a slack hand causes poverty but the hand of the diligent makes rich. We certainly don't want to have a slack hand when managing credit cards. I know you agree because we get a lot of questions about credit cards and two of them go something like this. If I close a credit card account, will it affect my score? And why does it affect my score? Your credit score will drop a little after closing an account.
Most people are surprised by that because it seems like you're being punished for doing the right thing. But it really comes down to mathematics and complicated computer algorithms. To find out why your score drops, we'll have to simplify things. So first, a definition.
An algorithm is just a set of rules that solve a problem in a limited number of steps. Algorithms live in computer models that give you more credit score points for having three things. Long-standing accounts, more available credit, and more kinds of accounts like a credit card, auto loan, and mortgage. If closing an account falls under one or more of those factors, your score goes down. So just remember, the longer you have an account open, the more credit you don't use, and the more types of accounts you have, well the higher your score. In fact, those three factors make up 55% of your FICO score.
Now why is that? Well it's simply because having old accounts, unused credit, and more kinds of accounts tells lenders that you're more likely to pay them back. But is this really something to worry about when you close an account? A slight drop in your credit score?
Usually not, but there's one occasion when it could be important. If you're shopping for a mortgage or some other kind of loan, you want the highest score possible. Lowering your score by even a few points could put you in a lower range of scores, and that could affect the interest rate you get on the loan. A higher interest rate means money out of your pocket every month. But in most cases, when you're not seeking a loan, a slight drop in your credit score means very little. You'll quickly make that up if you keep the outstanding balances below 30% on remaining accounts and you make your payments on time. So you may be asking, why bother closing an account after you've paid it off, especially if it's going to cost you points on your credit score? Well, there are at least two good reasons. First, it eliminates the temptation to use it if you run into an unexpected financial problem.
That's what your emergency fund is for, and you should use that money if the car breaks down or the water heater starts giving you cold showers. I've already mentioned the second reason to close an unused account. It's the constant threat of identity theft. If your account is hacked, it'll cause you a lot of headaches, especially if it's unused and you're not paying any attention to it. Now, even though I said go ahead and close an unused account and don't worry about your credit score, you don't want to close several of them at once, even though that would feel really good. Closing a bunch of accounts at once will multiply the negative effect on your score. The best way to close unused accounts is gradually.
No more than one or two every six months. That way you spread out the negative impact while at the same time minimizing it by keeping low balances and making on-time payments with your other accounts. Now, here are the steps to closing an account and making sure it's closed. First, pay off any remaining balance. Then check any recurring charges on the account and cancel or transfer them. After that, call your card issuer and tell them to cancel the account. You may want to follow up by writing an email or letter to your credit card issuer to confirm your card's been canceled. Finally, double check your credit reports at all three credit bureaus, Experian, TransUnion, and Equifax to make sure the account's been closed. You can get them for free at annualcreditreport.com. Okay, so that's why you should close an unused account and how you should do it. And again, don't worry about how it affects your score. Hey, have you checked out our new FaithFi app?
You can use it to manage your money and get a clear picture into your spending and perhaps make sure it's going where you want it to. You can learn more at faithfi.com. Just click the app. All right, your calls are next, 800-525-7000. I'm Rob West and we'll be right back.
Stay with us. What's most important to you when it comes to choosing your financial advisor? Someone who's aligned with your biblical values?
How about someone who will take the time to explain your options? Certified Kingdom Advisors are professionals who meet high standards in competence and integrity and have been trained to offer biblical financial advice. To find a Certified Kingdom Advisor in your area, visit faithfi.com and click Find a CKA. Do you feel like your hands are tied with debt, preventing you from serving God? If you have credit card debt, Christian Credit Counselors can help.
Through our debt management program, we can get you out of credit card debt about 80% faster while honoring your debt in full. For more information on how Christian Credit Counselors can help, visit christiancreditcounselors.org. That's christiancreditcounselors.org or call 800-557-1985. 800-557-1985.
Great to have you with us today on Faith and Finance. We're taking your calls and questions today. 800-525-7000. That's 800-525-7000. You can call right now.
Let's go out to Montana and welcome Toby to the broadcast. Go right ahead. Hi, thanks for taking my call. I recently sold a property and what I'd like to do is reinvest the money from the sale of that property into my business and possibly another investment property. And so my question is, what are my tax obligations going to be for the sale of that property and is there a way that I can put that into something like a 1031 or similar to best use that money for reinvestment and not be taxed on it as income?
So that's really my question. Yeah, I appreciate that. So let me just clarify, Toby, this property in Montana that you sold, it was not your primary residence, is that right? No, that's correct. I built it 10 years ago. Okay, very good. And so have you been renting it out or what have you been doing with it? No, just using it. It's a recreation property with the cabin and so we've just been using it.
Okay, very good. And you said your your gain on it was $225,000. Go over those numbers for me, if you will, just kind of your selling price in your original cost basis, plus the improvements you put into it. Yes. So I spent about $90,000 in total on the property and the building that's on there.
It's a cabin and I sold it for $250,000 less the money to my real estate agent, which actually comes up to $235,000, not $225,000. Okay. All right.
Very good. And did you put a lot of money into it? Have you factored that in? Just that initial investment to buy the property and build the building. So other than my annual taxes and general upkeep, I don't have a substantial amount of investment other than that initial investment.
Okay, got it. And yeah, so the question here is, and I would probably talk to, you know, a 1031 exchange expert, because you're going to need to use someone that specializes in that anyway. What is your intention? Are you wanting to roll it into a similar property? And would that be a vacation home? Or would that be, you know, a rental property now? Okay, so what I'd like to do is take a portion of that money and invest it into my business, and then have the remainder used for an additional property, which I haven't determined what that will be yet.
But we're thinking about something that will generate income. So a rental property would be okay, something we'd be looking at. Yeah, the challenge is that, you know, my understanding is that, and I'd want to check with it, you'd want to check with a CPA on this, if the property was used exclusively as a vacation or a second home, it can't be sold as a part of a 1031 exchange. And so I think the key is this was not used by you for, you know, I think the words are productive use in a trade or business, or for investment.
And, you know, a vacation home or a second home is neither held for a productive use in a trade or a business or for an investment. And so I think for that reason, this is not going to qualify for a 1031 exchange, which would mean that you would just then treat this as a long term capital gain for whatever the appreciation the gain was in the property. It sounds like you've already calculated that. And that would fall under the the long term capital gains rates for 2024. You know, if this is the year in which you sold it, and those rates right now depend upon, of course, your taxable income for the year. So for 2024, if you're married filing jointly, if your income is between $94,051 and $583,750, you'd be in the 15% capital gains rate below 94,051, you'd be at a 0% rate above 583,000, you'd be at 20%.
And that would be just on the gain in the property. Okay, sounds good. All right, very good. We appreciate your call today. Thanks for being on the program. Let's see, we're gonna go to Shorewood, Illinois. Hi, Eric.
How can I help? Hi, Rob. Just a quick question. I refinance my car and I'm paying an extra $115 over what was the amount. And I call recently or I've been receiving statements and realize that my bill is not changing the extra $115 not doing anything. That doesn't seem right to me. Hmm. Okay, so you're paying the extra payments, but you're not seeing it reduce the principal balance. Is that right? Yes.
Okay. And so have you called your loan servicer to inquire about that? Yes, I called and they are basically saying, I finance for 73 months, I've paid 32 more payments and I have 41 more payments to make.
And I'm like, that doesn't sound right. I should have less payments because I'm paying an extra $115 that should go towards the principal. Yeah. Do you have online access where you can log in and see kind of a running balance and the payments that are being applied to the account? Yes. And when I go in, I see that every time I pay the take interest of the total amount I'm paying. Right. Yes. So the extra amount I'm paying, they are taking interest out of it. Okay. Yeah. Something's not right there because what should happen is as long as you're covering at least the monthly payment, the scheduled payment should cover the principal and interest based on the schedule. And then anything you send above that, which you're sending something in excess of that, right?
That should go directly to principal. That's the argument I've been trying to make on the phone with one of the customer service people that they are telling me a story that it doesn't seem right. Yeah. And so they're basically taking, they're only applying a portion of the extra amount to the principal because they're taking interest off of even the amount you're sending above the monthly payment. Correct?
Exactly. I'm supposed to be paying the final, the loan for $385. I'm paying $500 that they are taking interest out of the $500. Yeah. Yeah. And did they have a place online when you're, where you can make a payment, where you can indicate a portion of it going to principal reduction separate from your monthly payment? I have to look into that. But when I started that, when I refinance, I talked to somebody and I actually told them that's what I wanted. Yes.
Okay. What I would do is, is two things. One is check to see where online, if they have a place specifically for principal reduction, because what happens is when you pay an auto loan, typically your monthly payment is first applied to any fees due if you have any late fees or anything like that. And then the next portion is applied to whatever interest is due, but they're required for anything beyond that, for it to go against principal. So I would probably ask for a manager or somebody to get on the line to say, here's what I'm trying to accomplish. I'm willing to pay the minimum payment for the month, but I need the extra amount I'm sending to go directly to principal.
I'm not prepaying the next month or anything like that. How do you want me to do it? Do I need to do it in two checks?
Is there a special way to do it online and see if you can get beyond just the person who picks up the phone to maybe a next level of management that could help you navigate what it is you're trying to accomplish? Thank you. I appreciate that. All right.
Let us know how it turns out, Eric. God bless you, sir. Before we head to the break, let me remind you, if you listen to this program regularly and you want to help others learn God's way of handling money so they can be a faithful steward, well, we'd like to invite you to become a FaithFi partner. A gift of $35 a month or more allows you to become a FaithFi partner where you'll receive exclusive quarterly ministry updates and early release copy of each of our studies and much more. Just go to faithfi.com and click give. That's faithfi.com and click give.
Back with more calls just around the corner. Stick around. Every day we hear life-changing stories from listeners just like you who see money and possessions as tools to invite more people into God's kingdom. Instead of chasing wealth, you've chosen to embrace God as your source of love and provision. At FaithFi, we're passionate about meeting people where they live and work through our national radio program, app, resources, and website to influence widespread positive change in our culture. Please consider becoming a monthly partner at faithfi.com slash give. We are grateful for support from the Eventide Center for Faith and Investing. ECFI is an educational initiative of Eventide Asset Management that seeks to help Christians understand and practice biblically faithful investing. They do this through their podcast and online journal featuring articles from industry thought leaders and their course called Discover God's Story for Investing. More information is available at faithandinvesting.com. That's faithandinvesting.com. Well, it's out the brand new edition of the FaithFi app. It's FaithFi 4.0.
Why would you want that? Well, it's all new. We've got brand new themes in there.
If you like dark mode, it's there. There's a new income plan allocation. This is one of the most requested features that our team has received where as your income comes in, you can actually have a plan to allocate that based on the income. So if you get a check on a specific day, you can go and say, okay, when that check hits automatically fund these envelopes at these amounts. And so you're not just funding on a date because your income may not hit that date.
You're actually funding based on a specific piece of income when it hits. There's brand new reports in there. There's a new account reconciliation feature.
It's a fresh new look, but it's better than ever. So if you've not downloaded the FaithFi app and you want to check it out, just head to your app store and search for FaithFi, Faith and Finance, or go to our website, faithfi.com and click app. Julie and I use it every day to check in on our own spending plan. We look at our envelopes and we see how we're doing. We're constantly looking at that food envelope and just saying, how are we doing this month? What changes do we need to make?
I guess we're eating at home tonight because we spent quite a bit this weekend. Well, we have the information to make those changes because we use the FaithFi app and we'd love for you to do that as well. By the way, also in the app is all of these broadcast archives, all of our content from Randy Alcorn and Ron Blue and Howard Dayton and others, as well as the FaithFi community, where you can post a question, get an answer, check it out.
Just head to your app store and search for FaithFi or go to our website, faithfi.com and click app. All right, let's head back to the phones. We've got some lines open today, 800-525-7000. You can call right now with your financial questions. Let's go to Louisiana. Hi, Pat.
How can I help? My question is I'm a retired government worker and I have two SP funds that I have not utilized sitting there, but I'm going to have to move that money. So I just need recommendations. Yeah. Do you mind if I ask how much you have in that account? Not very much. It's only about 250K.
Okay. Well, that's quite a bit of money if I do say so myself. You know, I'd love for you to go ahead and move that out of there and roll it to an IRA. And the best way to do that is to first decide, do you want to manage the money yourself or do you want to hire an advisor to do that? Because it is quite a bit of money and, you know, you've worked hard and long to set that aside and save it up. And so, you know, I would recommend that you have somebody who can understand your goals and objectives, your risk tolerance, what God's doing in your life in this season, how much income you need, and then develop an investment strategy to manage it. But you also have the option to manage it yourself if that's something you'd like to do.
Have you considered that? Yes, but I wanted to get as much information as possible. So I've gone through Dave Ramsey's class and continually trying to learn, and my husband and I were trying to be good stewards. And we believe in giving, you know, to Christian things, things that's going to promote and edify God and people. Yes, ma'am.
I love that. Well, I would encourage you to continue learning. And in fact, I'll send you a book called The Sound Mind Investing Handbook as our gift to you that will continue to encourage that learning. But what I would recommend as a part of your exploration of where to go next is to interview two or three certified kingdom advisors there in Louisiana. If you want an advisor to help you manage this, what you would do is just head to our website at faithfi.com.
And then right there at the top of the page, it'll say find a professional. And when you click that, you can say you're looking for somebody to help you with investments. It'll ask you whether you want traditional investments, or you want faith-based investments. Faith-based investments are just making sure that that certified kingdom advisor can invest in a way that aligns with your values if that's important to you. And then you'll get a list of the advisors that you could reach out to and interview.
And again, I would probably interview two or three. Now, if you decided to go that direction, what would happen to get back to your original question is they would open an IRA, an Individual Retirement Account at whatever brokerage firm they work with, could be Fidelity, could be Schwab, could be LPL, could be any number of them, Merrill Lynch. And then once that account's open, the advisor would help you fill out the TSP paperwork so that the TSP account would be rolled over into that IRA. And then once it got there, the advisor could begin managing it.
That is not a taxable event. But if you are going to go that route, I would select the advisor first, because you'll want that advisor to open the IRA that eventually is going to receive the TSP funds. Does that make sense?
Yes, yes. Now, even though I'm 69 and a half, so the age, will that impact impact getting this IRA? No, ma'am, it doesn't at all. So if you're over 59 and a half, you can pull the money out without there being a penalty on it. But you know, with you rolling it to an IRA, there is no tax created by that. So there's no penalty, there's no tax due. The only time you're going to pay tax is when you pull the money out when you withdraw it and take a distribution. But a rollover from a TSP to an IRA is not a distribution.
So therefore, it's not a taxable event. And then when you decide you want to start pulling some money out, maybe you want to, you know, start to pull an income stream. I mean, I'd, I'd have you start to think about maybe in terms of no more than 4% a year. So, you know, that's 10,000 on 250,000, you know, which is $830 a month.
So if you called your advisor, and you said, Listen, I want you to send me $800 a month. Well, that $800 a month, you know, times 12, that $10,000 would be added to your taxable income for the year, you'd pay tax on it. But you don't pay tax until you take it out. And that's your decision when you take it out.
Okay, so longevity wise, I mean, how long could it stay there? Oh, what about my kids, you know, with something if I keep the bucket, you know, go home with Jesus, trust fund or something like that. So the IRA can roll into a trust fund, can you do that? You could make the trust the beneficiary of the IRA, you could also make your kids the beneficiary of the IRA directly without using a trust. So you wouldn't have to use a trust. In fact, you should on your TSP and or your IRA, if you move to an IRA, you should make sure that you have your beneficiaries updated. So you may want your husband as the primary, and then you may want the kids as contingent, meaning if something happened to you and your husband at the same time, then it goes to the kids, and you would determine what percent each of them receive. And then they would receive it as an inherited IRA. And then as they pulled the money out, they would pay tax on it. But you know, the reason I mentioned the 4% withdrawal rate is that, you know, as long as it's invested properly, and that's why I'd use an advisor, you should be able to maintain that $250,000 balance over time, and pull out 800 a month, and you know, still, you know, protect the principal.
And so the idea would be, you know, maybe the Lord has you live into age 95 or more, hopefully there's still 250,000 or more, even with you pulling 10,000 a year, but the key is you've got to get it invested. Does that make sense? Thank you. I have to send you a pound plate. Yes, this is great. All right, great. Thank you for calling, Pat. You're a sweet lady, and I appreciate you being on the program today. Again, to find an advisor, just head to our website, faithfi.com, click find a professional. That's going to do it for us today, folks. Hey, check out our website, support our work there when you click give at faithfi.com, and we'll see you tomorrow. Faith and Finance is provided by FaithFi and listeners like you.
